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spk02: Hello everyone and welcome to the NIACC's third quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the speaker's prepared remarks. As a reminder, this conference call is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star, then 1 on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the call over to Ms. Virginia Stewart-Gibson. Please go ahead.
spk04: Thank you, operator, and everyone for joining us today on this conference call. With me on the call today are Yair Mechmad, NIAC's co-founder and chief executive officer, and Sadiq Manoor, chief financial officer. Following management's prepared remarks, we will open the call for the question and answer session. Our press release and supplementary investor presentation are available on our investor relations website at ir.niacs.com. As a reminder, during this call, we will be making forward-looking statements. All forward-looking statements on our call today are based on assumptions and therefore subject to risks and uncertainties that may cause results to differ materially from those projected. We have no obligation to update these statements except as required by law. You can read about these risks and uncertainties in our supplementary investor presentation released earlier today and our regulatory violence. In addition, today's call will include a discussion of non-IFRS measures Management believes non-IFRS results are useful in order to enhance our understanding and our ongoing performance. However, these measures should be considered as a supplement to and not as a substitute for IFRS financial measures. Reconciliations to Banaras IFRS measure can be found in our earnings press release issued earlier today. All key performance indicators are intended to evaluate our business and property measure factors in a macroeconomic environment to guide and support our decision-making. These key performance indicators may be calculated in a manner different from the industry standards. And finally, please note that all figures in today's call will be reported in U.S. dollars unless stated otherwise. Yair will start the call with key financial and operational highlights. Sadiq will go through the details of financial results and discuss the outlook. With that, I would like to turn the call over to NIAC's CEO, Yair Nekmag. Yair?
spk01: Thank you, Virginia, and thank you to everyone for joining us on our third quarter 2023 Earnings Conference Call. Before discussing our strong Q3 performance, I would like to take a moment to say how deeply heartbroken we are about the tragic event taking place in Israel. A priority remains the safety of our employee, and we will continue to give them the flexibility and support needed during these difficult times. We are thankful for the support and thoughtfulness that we have received from our customers, partners, and the financial community. Based on the internal analysis that we conducted, we have not seen any material impact to our operation at this time, and there has not been any material disruption to our supply chain, business continuity, sales of products and services, all the backlog, or employee productivity. Up to 7% of our employees are currently serving as reservists, with their teammates willingly working longer to maintain our productivity level. NYX is a global company providing services and solution and generating revenue across all major geographies. Revenue derived from Israel is only 8% for our full year 2022 and 6% for the nine months ended September 30, 2023. As I reflected on our performance today, I'm incredibly pleased with the strategic direction of the company, the strong and consistent execution of our growth strategy, both near and long term, and the unyielding commitment of our employees to achieve our shared vision and mission. On today's call, I'm going to focus my comments on two areas. I'll briefly highlight key results of our excellent third quarter and some notable achievements during the quarter. Our strong third quarter performance was highlighted by exponentially strong recurring revenue growth, overall gross margin improvement, and accelerated profitability. We delivered another record quarter with revenue of $60.3 million. The current revenue grew 48% year-over-year to a new record at $40.2 million. driven primarily by payment processing fees, which grew 57% over Q3 2022. Tax revenue grew 35%. The strong growth in recurring revenue increased to a new high at 67% of total revenue. Overall, gross margin was 38%, delivering another quarter of margin expansion by the team's relentless focus on improving our hardware growth margin and optimizing our global operation. Building on Q1 and Q2 2023 improvement, we continue to execute our playbook on hardware component cost management and operating expenses management across the business to further derive our profitability. Sagit will have more to say about our profitability outlook later on the call. Adjusted EBITDA accelerated in quarter to $3.5 million, more than doubling from the $1.3 million reached last quarter. This is also significant improvement of $7.2 million to adjusted EBITDA compared to a negative $3.7 million in Q3 2022. This ongoing profitability improvement has been driven largely by the high operating leverage in our business model, which is further compounded from scaling our diverse global business and the added benefits from the past investment we have made to further automate the business. Let me once again walk you through the significant operating leveraging we continue to see in our business model, giving us confidence to achieve our profitability targets. Looking at year-to-date September 2023 over year-to-date September 2022, We've delivered an increase of $46.3 million in revenue and an improvement of approximately $14.3 million to adjusted EBITDA, representing 30.9% adjusted EBITDA as a percent of total revenue for September year-to-date. These results indicate that revenue growth continues to outpace expenses growth and has delivered exponential impact on our operating leverage and instantly flowing directly to the bottom line. Our strong performance to date and business momentum demonstrates how our scalable business model and our capital management decision are putting us well on track towards our targeted profitability. Let's take a look at three key operational metrics that are accelerating our scale and having a direct impact on profitability. First, customer expansion. For the past three executive quarters, we have added roughly 4,000 customers each quarter across our large number of vertical and global footprint, including North America, Europe, Australia, and the rest of the world. We ended 2022 with a customer base of 47,000 customers and finished Q3 at 60,000 customers. While we have successfully won large tier one brand names, such as five-star Primo Water Canteen, Our bread and butter loyalty customers remain SMEs who rely on NIAC's comprehensive technology and solution to increase their revenue, reduce their operational costs, and most importantly, rapidly scale their businesses. In Q3, SMEs still represented approximately 70% of our business. As I mentioned, each quarter, two metrics that I'm particularly proud of and pay close attention to are our net retention rate, which measure our customer loyalty, and our churn rate, which measure our customer satisfaction. In Q3, our net retention rate increased to 145% from 139% last quarter, reflecting the high value and confidence our diverse customers placed on our NIACS end-to-end platform and solution. Our churn rate declined to 3.6% from 4.1% last quarter. Second, our Manage and Connect devices. In Q3, we reached a total number of 874,000 Manage and Connect devices by adding 50,000 devices. This total number of devices facilitated the processing of almost 500 million transactions across 80-plus countries. Over the past three years, from 2020 to 2022, we have grown the number of Manage and Connect devices by a compounded annual growth rate of 40% and roughly the same on a year-to-year basis. During 2023, the growth trajectory continued at a similar pace, driven by robust customer demand. I'm incredibly pleased that as we approach the end of 2023, NICE is in a strong position to reach our growth aspiration of 1 million manage and connect devices that we highlighted as a key milestone during our 2021 TACE IPO. Lastly, our land and expense strategy is working as we continue to rapidly increase and retain our customer base by solving their pain points with scalable solution driven sales approach. This has led to loyal and satisfied customers who become long-term partners and grow with NIAX for an increase in revenue organically through deeper penetration of the customer footprint, as well as additional revenue generating product and services. For example, revenue from new customers in 2018 grew more than five times over the next four years. I would now like to highlight two notable achievements during the quarter of acknowledgement of the great work the team is doing in. During Q3, we made two announcements that strengthened both our core business and one of our key emerging growth engines. NICE received authorization from the United Kingdom Financial Conduct Authority, establishing it as a financial entity. Rekognition is a global financial institution that acts as a fully compliant payment facilitator that simplifies processes for our customers and secures NYX's UK operation in the long term. CoinBridge entered into strategic partnership with GIFT, a global leader of loyalty technology solution. The collaboration marked a significant milestone for a loyalty industry by introducing the world's first open-loop loyalty payment solution. powered via CoinBridge by NIAX, partner technology. Lastly, on October 30th, we announced that we have entered into a definitive agreement to acquire RetailPro International, a global leader in retail point-of-sale software for the attended retail market. We believe this transition is a powerful deal that accelerates the next stage of NIAX's attended retail evolution. RetailPole bring a vast distribution channel of over 80 partners reseller, immediately tripling our distributor network to over 120 partners reseller. This will extend our scale and provide meaningful opportunity to cross-sell our payment solution to RetailPole's large and growing customer base into their extensive distribution channel. So in summary, we deliver a strong Q3 and our performance to date has been consistent with what we have communicated. We have continued to execute our strategic priority and growth plan. Our results throughout the year demonstrate that our business fundamentals remain intact and resilient. Our differentiated growth strategy and value proposition as a global solution provider with a complete end-to-end solution continue to resonate with our diverse global customer base. We continue to benefit from the secular growth trend and consumer behavior shift driving the global and under-penetrated unattended market. We have accelerated the pace of our profitability again. We are scaling the business based on our strong customer expansion, rapidly growing our base of managing connected devices and creating long-term thickness from our land and expand model. With that, I will now turn the call Over to Sagit to provide additional color about our financial performance and discuss our financial outlook. Sagit?
spk05: Thank you, Yair, and good morning, good evening, everyone. Overall, we had another great quarter with revenue growth outpacing expense growth and reflecting the strength of our operating leverage, accelerating profitability again. I'm going to walk you through some key financial highlights for the quarter and then share some color on our financial outlook. We delivered revenue of $60.3 million, an increase of 28% year-over-year. As I stated earlier, we more than doubled adjusted EBITDA in Q3 versus Q2 and again showed significant improvement compared both to Q2 2023 and Q3 2022. Our improved profitability trend continued in the third quarter. We delivered an adjusted EBITDA of positive $3.5 million compared to an adjusted EBITDA of negative $3.7 million in Q3 2022. Now let's turn to some of the key factors that drove our strong third quarter results, starting with an overview of the revenue performance. We continue to see exceptionally strong growth in recurring revenue, which is an important growth indicator of the underlying core unattended business. As a reminder, recurring revenue is comprised of our SAS subscription and payment processing fees. Recurring revenue for Q3 2023 grew 48% over Q3 2022 to reach a new high of $40 million in revenue and accounting for 67% of our total revenue. Similar to last quarter, the strength of our recurring revenue continues to be driven primarily by payment processing fees, which grew 57% year over year. It is worth repeating that NIAC's revenue model consisted of three main revenue pillars, which are derived from point-of-sale or POS devices, monthly subscription, and payment processing fees. Turning to POS hardware revenue, revenue in Q3 was in line with last quarter's revenue, contributing approximately $20 million to our overall revenue. the impact of foreign exchange on revenue in Q3 was immaterial. For the nine months ended September 30th, 2023, we delivered revenue growth of 38% over the nine months ended September 30th, 2022. Now let me turn to the highlights of our customer extension and the growth of our managed and connected devices. These metrics are key indicators of the scale we are building in our business and our ability to execute against one of our strategic long-term growth pillars. Customer expansion continued in the third quarter with 4,000 new customers added to our global and diverse customer base. We reported strong customer growth of 43% over the prior year quarter. as we expanded our customer base to 60,000 at the end of Q3. With the large market opportunity ahead of us that remains underpenetrated, customer expansion remains one of our key growth drivers as it is an indicator of our successful execution in expanding internationally and entering key growth markets for cashless payment solutions as well as growing market share. Turning to the growth of our devices. Managed and connected devices showed healthy year-over-year growth of 28%, ending the quarter with 874,000 devices. We reported significant increases in transaction dollar value. In Q3, transaction dollar value grew 61%, reaching a new high of $989 million, compared to $616 million in Q3 2022. This metric remained a key contributor to recurring revenue and recurring revenue growth margin, which was 47% in Q3. Recurring revenue growth margin was stable relative to last quarter and in line with our expectations. Turning to growth margin. Overall gross margin continued to trend higher. Q3 gross margin of 38% was higher compared to Q2 2023 of 37% and Q3 2022 of 34%. The improvement is mainly due to ongoing household margin improvements. In Q3, How the gross margin improved to 21% from 19% in Q2 2023 and 12% in Q1 2023. For the nine months of 2023, we were able to report how the gross margin of 17% in line with our annual target and as previously indicated. As communicated last quarter's earnings call, we were expecting to see ongoing hardware gross margin improvement to the meetings throughout the year. I will have more to say about the direction of our gross margin during my outlook discussion. Moving to operating expenses. Operating expenses include research and development, share-based compensation expenses, and depreciation and amortization. Total operating expenses of $23.9 million decreased 1% from Q2 2023 and reflects lower SG&A costs. On a percentage of total revenue basis, operating expenses improved accounting for 40% of Q3 2023 total revenue from 50% of Q3 2022 total revenue. This highlights the operating expense leveraged across sales, R&D, and SG&A, resulting in a strong operating leverage acceleration and flowing directly to the bottom line. Q3 operating expenses did not have a material impact on foreign currency exchange rate fluctuation compared to Q2 2023. Net loss improved significantly and was $3.1 million for Q3 2023 compared to net loss of $9.9 million in Q3 2022. Turning to the balance sheet, we ended Q3 with cash and cash equivalents and short-term deposits of approximately $40 million. The increased cash balance is reflected from the additional credit facility secured to fund the proposed RetailPro acquisition with the expected closing in Q4 and which was announced on October 30th. Our outstanding debt balance increased at the end of the quarter to $33 million. As mentioned, we announced the proposed transaction of RetailPro on October 30th. we would expect to see a lower leverage ratio given the large profit base post-acquisition. Ripple poised profit above on a standalone basis and generated approximately $4 million of adjusted dividends in FY22. Let me finish with our outlook for 2023. As a reminder, Our 2023 guidance is based on what we are actually seeing in terms of behavior from our customers around the globe. It, of course, reflects what we know today about the secular shift in payments that continue to be strong tailwind, our strong market leadership, and the robust demand from both our existing customers and the large and expanding new customers for our comprehensive product portfolio. Today, we are reaffirming the revenue outlook on a constant currency basis provided on our last earnings call on August 9th. For the full year 2023, we expect our revenue to be in the range of $235 million to $240 million, representing year-over-year growth of at least 35% as previously communicated. we are reaffirming our hardware gross margin outlook and expect it to continue its improvement throughout the year to the new teams. As Yair mentioned, we are very pleased by the direction of hardware gross margins throughout the year, and we expect to maintain this ongoing improvement. Given our focus on moderating expenses and the ongoing efficiencies gained from our investments in scaling the business, We continue to expect operating expenses for the full year 2023 to be flat from the Q4 2022 annualized run rate. For adjusted EBITDA, we are raising our guidance range to be between $4 to $7 million in 2023 from $3 to $7 million. This reflects our strong operating leverage from revenues growing faster than expenses and improved gross margins. As for long-term outlook, we are reaffirming our outlook and remain confident about reaching these targets. We expect our revenue to continue to grow 35% year-over-year. What's margin in the long-term is expected to reach 50% by providing leasing option for IoT POS, growing SAS revenue, and payment processing fee from our core business and services offering through our growth engine initiatives. Our long-term adjusted EBITDA margin guidance is set around 30%. Our focus on delivering strong revenue growth and improved adjusted EBITDA remains a top priority, and I am pleased with the consistency of our execution. I would like now to turn the call to the operator so that we can take your questions. Operator?
spk02: Thank you. We will now begin the question and answer session. To join the question queue, you may press star then 1 on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then 2. We will pause for a moment as callers join the queue. Our first question comes from Trevor Williams of Jefferies. Please go ahead.
spk03: Thanks. Good morning, and hey, guys. I was wondering if you could just give a comment maybe more broadly on what you're seeing from the demand environment overall. I mean, we look at your net new device ads have still been very consistent, if anything. It looks like you're at kind of a stepped-up quarterly pace from what you've been at in the last couple of years. Maybe you guys could speak to that. just the level of visibility you have into that persisting through 2024. I know you guys have commented on, you know, historically on the level of macro sensitivity and the durability of the business, but just thinking from a net new device ad standpoint, kind of what you're seeing in your conversations with customers and how good the visibility is into the current level of net ads persisting kind of through regardless of the macro climate. I appreciate it. Thanks so much.
spk01: Hi, Trevor. It's Yair. Thank you for the question. I think the leading indicator is customer base, and it's a trend that keeps on going, the 4,000, 5,000 customer base, and you see this also in this quarter. And we don't see any kind of holdback in terms of demand from customers. actually we are overwhelmed with the demand, and the idea is how we can scale it into what we call quick wins and quick close of sales, which we're working very hard in order to really push this. We don't see, from our point, any kind of delay in terms of demands all over the world. Besides, of course, sorry to say, besides, of course, the change in Israel, but Israel is nine months less than 6% of our business.
spk05: And maybe to add to this, and thank you for the question, a couple of things. One is that we are set to reach the million, sorry, managed and connected devices at the end of 2024. sorry, at the end of 2023, as we've communicated in the IPO. So that's one. And second, I think it's important to look at the nine months ended in September. And you'll see that hardware revenue actually grew to $60 million from $47 million last year for 28% year-over-year growth. And as you know, we are looking at the year as an annual growth. And so very proud on the numbers that we've achieved this quarter and looking forward to Q4.
spk03: That's great. Thanks so much. And then my quick follow-up, this is just for you, Sugi, a clarification for the full year for this year. Sorry, I think you've been assuming hardware revenue is going to be about 40%. of total company revenue. I just want to clarify whether that assumption still holds. It does imply a pretty good ramp in Q4, if that's the case. I just want to clarify. Thank you.
spk05: Of course, it will be around 40%. We always talk about, you know, between 35% to 40%. And so the answer is yes. Great. Thank you, guys.
spk02: Once again, if you have a question, please press star, then one. Our next question comes from Chris Kennedy of William Blair. Please go ahead.
spk00: Thanks for taking the questions. Can you talk a little bit about the net revenue retention rate, 145% year-to-date? It looks like that's kind of a record level. What's the key drivers behind that? Hi, Chris.
spk01: It's Diego. We invest a lot regarding digitization of all the support and all the operation behind the scenes. It's something that usually nobody sees, and we now are cultivating the fruits from this kind of investment, and it's ongoing improvement. At the end of the day, we are competing in two folds. One is, as I said, on a global level, we're competing against cash. And the other one is we're competing against time. And the more that we can reduce the time of resolution for any kind of issues or any kind of requests from customer base, we see immediate return around this. So we are in a pace of what we call to hold a very successful customer support and onboarding. And it's a lot of what we call friction regarding the whole payment industry, as I'm sure that you know. There's a lot of friction behind this. And as a one-stop solution, a strategy in NARCS is trying to excel on this. And that's where the investment is coming, and that's the fruits of this investment.
spk00: Got it. Very helpful. And then just for a follow-up, you announced a large partnership in the U.S. for EV chargers. Can you just talk about your competitive position to capture the growth of the EV market? Thank you.
spk01: This is a short question. It's a big session, the energy market, as we call it, because we're looking at all the energy as a whole. But focusing on, let's say, DC charger and AC chargers, there is a lot of players and stakeholders that need to be served. And we try to build a full solution of multiple stakeholders for a multi-residential location, for DC charger stock shop or stock location. or on the parking streets. So there is a lot of initiatives that we're doing around this domain because we believe in five to seven years it will be potentially more than double from the unattended, purely unattended. It is unattended, but it is energy unattended. So there is a lot of potential that we see over there, and we're working from a lot of angles to cover this from OEM, specifically in the U.S. or Europe, multiple angles that have been built to support this market and to come to a solution that, at the end, bring a seamless result or seamless process for the consumers while he's charging his car.
spk06: Great. Thanks for taking the question.
spk02: This concludes the question and answer session. I would like to turn the conference back over to Yair Nekhmad for any closing remarks.
spk06: Mr. Nekhmad, your line is live.
spk01: Thank you, Operator. Thank you very much to everyone for joining us on the call. I'd like to thank the Global Max team for their unyielding commitment to executing our Max vision and mission and to our partners and customers who continue to be an important part of our success as a leading integrated payment company. And again, thank you very much.
spk02: This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
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